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5 Steps to Downsizing Your Way to a Comfortable Retirement

The rumors are true: Florida is full of 55-plus communities with rows of doublewide mobile homes. The nicer ones have amenities like golf courses, swimming pools, clubhouses… you name it. As you’d expect, the living cost is modest. But here’s the part that blows people away: many of the people who live in these communities are quite wealthy.

That’s right—not everyone living in a doublewide is a NASCAR fan.

My wife and I have friends who live in these communities… people who’ve enjoyed successful careers and built up respectable nest eggs. They still play golf or tennis and participate in the weekly wine and cheese party. Their biggest complaint, frankly, is having a social calendar that’s too packed.

What’s their secret? None looked at downsizing as a step down. Instead, they considered it a prudent way to free up their time and money. These folks are 100% debt-free and are wealthy enough to spend their time however they choose. They found a way to retire rich on their own terms—a milestone I fear most never reach.

A Rude Awakening

When I ran retirement projections in my 40s, I had three teenagers preparing for college and more immediate priorities. I’d tell myself to worry about it later, drop another $2,000 in my IRA, and keep my nose to the grindstone.

Time went by quickly. By my 60s, there was not much “later” left.

According to Fidelity’s annual roundup, savers on the brink of retirement age (55 to 64) had an average 401(k) balance of $165,200 in 2013. While that number is up from $143,300, it still won’t stretch that far.

Even retirement savers with both a Fidelity-managed 401(k) and IRA had a combined average balance of $261,400—still not much. If Mr. Average were to draw down his $261,400 combined balance over 40 years, assuming a modest 5% annual return and 3% inflation, his first month’s income would come to a measly $773.

I encourage everyone to download the Miller’s MoneyRetirement Income Calculator to run a similar projection. You can personalize it, adjusting the rate of return, inflation, beginning balance, and number of years your portfolio needs to last.

If you’re approaching retirement age and off the mark, you still have recourse.

Remember, the goal of retirement saving and investing is to build enough wealth to live comfortably without working. What’s comfortable? For most, it’s simply maintaining the same lifestyle they enjoyed during their working years.

If you’ve lived in a middle-class neighborhood for the last 40 years, you want the option to stay there. If you keep a nice home at the country club and play golf three times a week, you likely want to continue that lifestyle. Whatever you’ve grown accustomed to is what “comfortable” means for you. We all want to keep on keepin’ on.

So run the numbers. If you’re off the target but still young, small adjustments can go a long way. But if you’re approaching retirement age, you have options… some of which are more appealing than others.

Option #1: Downgrade your lifestyle expectations. At the most extreme, this means accepting that you’ll only have enough for a subsistence lifestyle in retirement. You will constantly worry about money and likely become a burden to your family. I don’t know anyone who wants that, so let’s move on to more optimistic choices.

Option #2: Work longer. Readers often write to tell me they’ll never have money worries because they plan to work forever. Don’t fall into that trap. Now, if you’re healthy enough to work and enjoy your job, by all means, keep at it. But you can’t assume that will always be the case.

All bodies wither. Sometimes our minds fail us. 70-year-olds get pushed out of jobs. And frankly, some people just get tired or would prefer to spend their time doing other things.

So continuing working is not the solution in and of itself. If you choose to work longer than you’d initially planned, upping your savings rate is crucial. Set a new target date and a new savings goal. Curb your spending, and you’ll get there.

This doesn’t mean you have to quit working when you hit your savings target. If you enjoy working and know you can quit anytime, it takes a lot of the pressure off.

There are additional ways to maximize this catch-up time:

Develop a Plan to Get Totally Out of Debt

No debt, no mortgage, no excuses. Start with a five-year timeframe. If that’s not enough time, try seven years. If you need longer than that, get real about the next two points.

Attack Your Spending

Most people don’t have a saving problem; they have a spending problem. Unless you reduce spending, saving is very difficult. To retire rich, you have to live below your means. It’s the only way.

Lower Fixed Expenses

Do you own too much house, too many cars, and maybe even a boat? You might be surprised by how freeing it is to let go of large, recurring expenses.

Get a Handle on Your Investments

Get educated and get involved. No one should rely solely on a money manager. Remember, there are no do-overs, and your financial well-being matters to you more than anyone else.

Be Realistic About What Will Work for You

A good plan you don’t implement won’t help, so be honest with yourself. Then commit and get it done!

Are you thinking about downsizing but don’t want to live in a doublewide? You don’t have to.

If you’re playing catch up, though, don’t just keep working. Build a five-year plan to get out of debt and save as much as you can. If you’re a NASCAR fan, you may even have enough left over for the better seats at Daytona.

All jokes aside, if you’re not on track, overwhelmed, or just need someone to bounce ideas off of, the right financial planner can help you map out a workable plan. There are tricks to finding the right planner—a planner who’s obligated to put your best interests first. You might be surprised to learn that not all financial planners are held to this standard.

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